Does Listing High Make Sense?

June 8, 2016 No Comments »
Does Listing High Make Sense?

The age old question in real estate – do you list high or low?

On the surface this is perhaps a tough one to answer, though most real estate pros will probably tell you to list low and hope for a bidding war.

Ultimately, the last thing you want to do is list a home too high and watch it languish on the market. Then after receiving no bids, be forced to cut the asking price.

As mentioned, price reductions are common after a listing has sat on the market for 45 days. They can happen well before that too, but they seem to increase after 45 days because that’s when the seller desperation really kicks in.

Why Do Sellers List High?

Before we get into the high vs. low argument, let’s explore why home sellers list their homes high to begin with.

Perhaps the number one reason people list high is because they think their home is perfect in every way. Put simply, it’s the Taj Mahal of their neighborhood and any buyer would be lucky to get it at any price.

Of course, everyone else knows this is clearly untrue and generally cringes when they see the sellers try to get some exorbitant amount for their quirky property.

Remember, those weird things you did to your property may have been a value-add for you, but nobody else. Examples include funky murals on walls and other strange art that appeals to absolutely no one else.

Another common reason sellers list high is because they’re would-be sellers, aka Make Me Move sellers. They will sell if the price is right, but they won’t part with their palace for anything less than top dollar.

These sellers are probably the last people you’ll want to deal with if you’re a buyer because they can just bide their time and wait for better, higher offers to come in the door. Essentially, they have no urgency to sell and that isn’t fun for buyers.

Lastly, sellers may list high because of poor direction from a real estate agent. Some agents might get greedy, or fail to do their homework before throwing up a listing. It won’t take long to realize the mistake though.

Overpriced Homes Sell for 5% Less

how long

Now that we know why sellers list high, let’s explore the consequences. A new study from Zillow found homes that spend two months on the market sell for five percent less than their counterparts.

That’s obviously not a good thing, and there is a clear correlation between time spent on market and declining sales price.

If you look at the graph above, you’ll notice that the sales price relative to list price dwindles as time goes on. In other words, you’ll want to sell your home as quickly as possible to snag top dollar.

For homes that spend 11 months on the market, the final sales price tends to be 12% below list. Ouch!

The clear takeaway here is that it probably doesn’t make much sense to list high in the hope of getting a higher sales price.

This is especially true now that websites like Zillow and Redfin show the listing history right on the property listing page. Potential buyers will easily be able to see that you had no luck in the past and that demand for your property is pretty low.

However, if you truly aren’t in any rush to sell and don’t care if your home just sits on the market, you’re always welcome to list it for as much as you’d like. All you need is one buyer and that person could come around at any time, even one year later…

Read more: How much to offer on a home?

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